Fed Hopes for 'Pain-Free Landing' from Inflation Spike

The Federal Reserve is optimistic that it can tame inflation without damaging the job market. Fed officials believe that businesses will adjust their price-setting behaviors if they think the central bank is taking action to combat high inflation.

Richmond Fed President Thomas Barkin said, 'If people think the Fed is on the case in doing something about inflation, that does tend to flow through to people's expectations in price-setting behaviors.'

The labour market is seen as balanced near full employment, with a jobless rate of 4.1% and moderate wage gains consistent with 2% inflation.

Fed officials are counting on anchored expectations rather than demand destruction to do their work. They believe that the current approach may mean slower progress and a longer inflation fight.